Form W-9 for Canadian resident

[bruce]

As a dual citizen (US & Cdn) residing in Canada I will soon be opening both a Cdn brokerage account and a Canadian brokerage RRSP. The application material for the major Cdn brokerages indicates that I will need to provide proof of Canadian residency and (as a US citizen) a completed form W-9 along with a "waiver of client confidentiality". This all seems to be related to applying the appropriate withholding taxes.

Are the Cdn withholding taxes really different for a dual citizen living in Canada versus a normal Canadian (non-dual) resident? Or is this simply a way for the IRS to track earnings that are outside of their jurisdiction?

(As an aside, I find the "waiver of confientiality" somewhat disconcerting. What's the downside of simply skipping the W-9 and providing proof of Cdn residency/citizenship?)

Thanks.

[nelsona]

Once it becomes known to the brokerage that you are a "US peron" (either by citizenship or US residence) they are bound to comply with US withholding.

Had you not mentionned to them that you were a US citizen, there would have been none of this.


The w-9 avoids all US withholding. Otherwise it is likely 30%.

I don't know what theconfidentiality waiver is for.

[bruce]

I never mentioned anything to the Cdn brokerage about being a US citizen. They sent me a form after I moved back from USA saying I needed to send them either proof of Canadian residency and, if a US person, a completed W9.

My instinct is to just go with the Canadian residency and skip the W9 (and related waiver) unless there is compelling reason to do otherwise. In this case, the Cdn broker would treat me like any other Cdn resident/citizen (so no 30% US withholding) since they don't know about citizenship. What I'm trying to figure out is if there are any pros/cons on this situation that I have not considered. Are there any advantages of filing W9? For example:

1) Per your note, the W9 avoids all US withholding. Perhaps this is a better situation than being treated as a canadian citizen/resident (i.e. non-US person)? What rate do Cdn brokers withhold from Canadians on US holdings? If it's higher than the 0% that you mentioned, then filing w9 might not be so bad.

2) Will I get in serious trouble with the IRS by not having a w9 on file with Cdn broker? I'll be declaring everything on my US taxes anyway but don't want to cause additional headaches. Don't want my forgetting to file a w9 to impact my ability to use FTCs, etc on my US return.

Thanks.

[nelsona]

As i said, they suspected you were a US person by the fact your lived in US and this kicked in the request.. They may simply be asking you IF you need to file w-9, not that you MUST file w-9 to deal with them. Technically, you do.


As to withholding, Cdn brokers don't withhold from cdn residents. They do withhold from US citizens who do not provide them with W-9.

the IRS won't care, since you will pay your taxes. Your brokerage is the one you have to please on this issue. If you don't like they way thay are dealing with you, walk farther down the street.

[bruce]

"the IRS won't care, since you will pay your taxes."

I think that really answers the core of my questions. Sounds like the whole situation is another example of onerous and costly reporting/paperwork (with negligible impact/value) driven by the IRS. Sigh.

Thank you!

[bruce]

"As to withholding, Cdn brokers don't withhold from cdn residents. They do withhold from US citizens who do not provide them with W-9."

Nelsona,

I just read some new information on this topic which made me question the above statement. It appears that Cdn brokers *do* withhold from Canadian residents on certain holdings. For example, a Canadian that holds a US-based ETF or stock in a Canadian broker account will have 15% treaty rate withheld from dividends.

So at least when talking about US-based investments, it sounds to me like with no proof of Cdn residency (or w-9), withholding is maxed at 30%. Proof of Canadian residency lowers this to treaty rate (15%). Filing W-9 reduces this to 0%. Does that sound right?

[nelsona]

To clarify my statement, Cdn brokers do not withhold Cdn tax from Cdn residents.

[Mark T Serbinski CA CPA]

Most Canadian brokers collect US identification data or residential informatin so that they can withhold appropriate non Canadian tax amounts for investments made in the U.S. or elsewhere, through the Canadian brokerage account.